Lamont announces $336 million tax cut plan
Gov. Ned Lamont announced a $336 million tax relief plan Wednesday centered on capping car tax rates and expanding an income tax credit for middle-class property owners.
The governor’s plan also would accelerate planned tax relief for retirees and reward businesses that help employees pay down student loans.
Some elements of the plan involve overdue relief Lamont had promised during his 2018 campaign. And while there were new elements, the governor scrapped one component of his campaign pledge — special, targeted income tax relief for some of Connecticut’s poorest households.
“We’re doing everything we can to make Connecticut more affordable,” the governor said during a midday online news conference.
Lamont said that while he wanted to do more, his options are limited because of economic uncertainty and rules tied to emergency federal aid supporting the current state budget.
The Democratic governor’s plan is centered on the municipal property tax, which generates more revenue than any state or other local tax.
The governor would lower the current cap on municipal tax rates on passenger and commercial vehicles from 45 mills to 29 mills (one mill equals $1 in tax per $1,000 of assessed value). And while only eight of the state’s 169 cities and towns currently levy tax rates above 45 mills, the lower threshold would affect 103 communities.
To ensure municipalities with rates higher than 29 mills don’t lose funds, Lamont’s plan would appropriate an extra $160 million per year to keep them whole.
Lamont also would attack the property tax problem by providing $123 million per year in state income tax cuts.
Connecticut currently offers a $200 income tax credit to middle class households to offset property tax burdens, but it has been limited since 2018 to seniors or to families with children. The governor’s plan would restore eligibility to all households within income limits and would boost the credit to $300.
The property tax has long been criticized as an impediment to economic development and a major obstacle toward reversing extreme income and wealth inequality in Connecticut. That’s because the tax is regressive, applying the same rate to all taxpayers regardless of household income or ability to pay.
“The property tax is pretty relentless,” Lamont said. “It particularly hits the middle class hard.”
But as a gubernatorial candidate in 2018, Lamont had pledged to make these changes to the property tax credit by 2022 and also to create a new “targeted relief” credit aimed at lower-income households, specifically those that must dedicate at least 6.5 % of their income to property taxes. The average credit would be just under $700, though some households could receive as much as $1,200.
This element, which would have cost roughly $200 million per year, was absent from the agenda Lamont outlined Wednesday.
But Lamont’s budget director, Office of Policy and Management Secretary Melissa McCaw, said emergency federal pandemic relief — about $1.8 billion used to support the current two-year budget in Connecticut — has complicated matters.
States accepting this pandemic relief are greatly restricted in how they use federal dollars to cut taxes. Connecticut generally is capped at about 1% of its General Fund tax revenues, which is roughly $250 million for the upcoming fiscal year, McCaw said.
The state income tax cuts Lamont offered Wednesday cost about $123 million per year.
The plan to give municipalities $160 million to help them freeze car taxes, technically, is a state budget expenditure and not a tax cut.
But the governor also proposed two more state tax cuts that, combined, will add $52 million more per year.
The first involves accelerating an already approved plan to phase out income taxes on pension and annuity income for individuals receiving less than $75,000 per year and couples receiving less than $100,000.
Lamont also would expand an existing business tax credit for companies that help their employees repay student loans.
With those proposals, Lamont’s plan includes about $175 million in tax relief from an accounting perspective, leaving too little under the cap to cover the promised income tax cut for low-income households.
Lamont said his administration is looking into options to use federal relief to fund a second, temporary expansion of another credit for the working poor.
Lamont already announced in late December he would send $75 million in expiring federal pandemic relief to nearly 200,000 families that qualify for the state income tax’s Earned Income Credit. That was an average one-time payment of $377.
The governor didn’t offer many more details Wednesday but said he expects the second round of funding would involve a similar amount.
The emergency federal coronavirus aid expires after 2023, and Lamont acknowledged that many state legislators may want to revisit Connecticut’s tax system after that.
Rep. Sean Scanlon, D-Guilford, who co-chairs the Finance, Revenue and Bonding Committee, already has pledged to renew his proposal for a new state income tax credit to help low- and middle-income households with children.
Scanlon, who has proposed a credit of up to $600 per child, also wants to boost the Earned Income Tax Credit to further assist the working poor.
Scanlon on Wednesday called the governor’s proposals to provide property tax relief “really strong.
“I look forward to working with him, but I don’t think this list is comprehensive enough.”
Madison Republican Bob Stefanowski, who lost the 2018 campaign against Lamont and is seeking a rematch this year, said the governor’s new proposals “don’t even begin to scratch the surface of lowering the burden of affordability on Connecticut’s families and small businesses.”
Stefanowski added that Lamont “has never even tried to make good” on his 2018 campaign promise but noted the governor and legislature have approved tax hikes on commercial truck use and restaurant food that only exacerbate inflation in Connecticut.
Lamont offered his campaign pledge to ease property tax burdens as a shield after Stefanowski made an unprecedented claim: that he could phase out the entire state income tax in eight years.
The claim infuriated Democrats who quickly noted that Stefanowski offered no details on how the state could meet its financial commitments, let alone prevent deterioration of government services across Connecticut, by eliminating a tax that funds one-half of the entire state budget.